August 3, 2018With Industry 4.0 fueling the most profound transformation of manufacturing in decades, a crucial question concerns China, holder of the top spot on the most recent UN manufacturing output table: Is the country keeping pace? Our research has confirmed that China retains a leading position among major manufacturing countries in four radical shifts that will shape manufacturing’s future.

At the base of Industry 4.0 is autonomous manufacturing. Robots, collaborative robotics (or “cobots”), and autonomous vehicles are not just creating fully automated manufacturing lines. They’re also plugging factories into an end-to-end value chain, amid a supplier ecosystem that will enable dramatic increases both in value-added services and in the innovation of business models.

These factories of the future will be data-rich, using powerful new analytics tools to mine billions of data points and unleash AI and machine learning. The results? We project that output will nearly double thanks to breakthroughs in manufacturing-line efficiency, quality issues will fall by half through tighter performance management, and machine downtime will plummet with advanced predictive maintenance.

Tighter integration of suppliers will let manufacturers project demand down to the component level, starting from downstream suppliers and reaching all the way through to original-equipment manufacturers (OEMs) and on to customers. This transparency will, we believe, boost forecasting accuracy by one-third—and, combined with the sharing of real-time production data across the supply chain, slash inventory-holding costs by 20 percent to 40 percent, and lead times by up to 15 weeks.

Using robots for the most challenging manual tasks will also enable up to 90 percent of factory floor workers to be retrained and redeployed to more rewarding, value-adding jobs, with the net effect being roughly a 70 percent gain in labor productivity (exhibit). Combined, these improvements mean that investments in the factories of the future will likely pay off in less than two years.

Exhibit

Our survey data show that Chinese manufacturers understand these benefits: almost nine in ten respondents ranked the implementation of Industry 4.0 as a top priority, compared to just 68 percent of respondents globally. (Only Indian respondents prioritized the concept more highly.) Moreover, Chinese manufacturers are taking action, piloting an average of 10.2 Industry 4.0 solutions, compared to the global average of 8 solutions.

But challenges remain. Large companies can find it difficult to coordinate across internal units, some of which may be reluctant to change. Leaders need courage to overcome internal obstacles and guide their organizations through radical transformation. Finding talent is hard, with internal sources often thin on the ground—yet outsourcing raising concerns about cybersecurity and data ownership.

Nevertheless, companies are already overcoming the challenges. Our research indicates that the ones that are creating the most value through digital technology in their operations are following the same essential success factors.

Top-team conviction and direct ownership

The success stories start by claiming first-mover advantage, even if they aren’t digital natives such as Alibaba or Uber. Committing to early and aggressive digitization has allowed certain players in industries such as automotive and semiconductors to capture major gains. Their experience can provide valuable insights for more traditional, process-oriented manufacturers seeking to make the leap from a conventional mind-set to Industry 4.0. The bad news, of course, is that companies that fail to make the leap will be left behind. But the good news is that the required transformation is within reach of any company whose leadership is committed to change and unafraid to take direct ownership.

A prioritized roadmap and strategy

Many organizations run into problems when they try to articulate a business case for significant IT-architecture investments. Further examination often reveals a fundamental mistake: a belief in building a strategy around technology, rather than around the company’s unique business needs and processes. Instead, the starting point should be a detailed diagnosis of the company’s current operations, so that the top team and other stakeholders can understand the real sources of opportunity and embrace the art of the possible. A cross-functional innovation team can then identify a range of potential business processes that can be radically reengineered as digital applications. Ranked according their return on investment, these use cases are designed, tested, and refined before being incorporated into an implementation roadmap that gradually embeds the changes into day-to-day production systems—which are fully aligned from suppliers at one end to customers at the other.

Effective workforce engagement

Frontline workers and managers may see change as a threat. Effective communication and change-management programs are necessary to address these mind-set barriers—along with judicious sequencing to reduce pain points among employees. By choosing to start the testing and rollout process with digital applications that improve frontline worker’s jobs, companies can counter beliefs that change is not possible. In parallel, change agents chosen from every level of the company can advocate for the new way of working; hearing about the benefits from co-workers can build trust more quickly than hearing it from bosses. Retraining and redeploying workers to new roles can reassure them of the organization’s commitment.

Clear understanding of IT needs

For Industry 4.0 to fulfill its promise, corporate IT must do more than ever. Too often, it doesn’t: Globally, more than 44% of survey respondents pointed to IT deficiencies as a main obstacle to Industry 4.0. Industry 4.0 readiness requires a manufacturer’s IT system to be: comprehensive, supporting the company’s operating model from collection and connectivity through to data, analytics, and applications; analytics-enabled, using architectures such as data lakes that make in-depth analytics possible; scalable, particularly in data collection and analysis; integrated across operational and information technologies; and secure, covering both today’s connectivity and potential future developments.

A few strong vendor partnerships

Industry 4.0 has created a cottage industry of technology companies offering proprietary solutions, so choosing technology partners can be overwhelming. It’s important to build strong partnerships with a few providers who can demonstrate that they understand and care about your business. Refuse solutions that don’t clearly fit your organization’s prioritized roadmap, and set clear progress milestones and protocols for escalating issues.

Early development of critical new skills

Technical, analytical, and business capabilities are all needed to build a successful digital organization, and few people combine all three skill sets in one package. Where possible, build these skills internally as part of your workforce engagement strategy. Where gaps will likely take too long to fill, recruit for critical new profiles early, especially for ones in short supply such as data architects and engineers, data-strategy and data-science analysts, and system-integration engineers.

China shows enormous promise not only as the factory of today, but as the factory of tomorrow as well. But to fulfill that promise, more companies must take more action more quickly, or risk falling behind.

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